A Comment -- General Comments From an Expert (A Commentary)

Markets. When it looked like Hillary, not Bernie, might be the next president then the markets calmed. You could keep the banks, then. She will go forward against the other gent and the Americans are less embarrassed about their citizenship. In the end Brexit doesn’t matter, although he thinks in the end they stay in. These large political events are disturbing just because they are there and they get in the way. He does not know if a Brexit will cut them off from the EU markets. He does not think they should leave. Resource stocks have disproportionately led the markets higher.

Markets. Global 10 year yields have declined because global growth has not really progressed very much since the recession. Inflation is still low, but in the US, pressure on wages is starting to happen, but not enough that the market cares yet. Janet Yellin advised they were going to delay increasing interest rates again. This will probably be delayed until the fall, and may be only 1%. He is more cautious now than he was in January. TSX is trading around 17.5%-17.8% times earnings, which isn’t cheap. That is the top of his valuation range for the year. He is positive on oil prices, although they are a little ahead of themselves now. Demand is still there and growing at 1%-2%. If energy gets up to $55-$60, then he would pare back his energy holdings somewhat. Longer-term he doesn’t see the dividend growth that he probably saw over the last 2 cycles.

Markets. He is guardedly optimistic. Valuations are reasonably full. The market is climbing a wall of worry, probably because rates are so low with some expectation that they are going to stay low and people are being dragged into equities as the sort of best house in a bad neighbourhood. The TSX has underperformed for quite some time and is finally picking up some steam. The million-dollar question is, is that sustainable. Higher interest rates in some instances is probably a better thing. It will allow the financial system to function in a more normal fashion.

Markets. The market has been grinding higher for a while. The S&P 500 1-year number is now + 1%. The TSX, even though it is on a tear this year, is still minus about 2.5%. We have had this on/off, on/off Fed watch with interest rates, which has caused all of the volatility. You have a bifurcated market in both Canada and the US. Sentiment is at all-time lows, so it is creating a sort of contrarian, very surprising “grind up”. Two big mistakes that people made were bailing in the February downdraft, which is maybe why we are not having a “sell in May” phenomena right now, and people feeling that interest rates were going to go up and the US$ would resume its strengths. The key is to cut the big losers quickly and do a little bit of rotation on the side.

Markets. He is constructive on the US economy, and is expecting about a 2% growth this year. Globally the consensus is that it is about 2.5%-3% growth, which is well below potential, but we live in a slow growth, slow inflation world right now. US markets are close to their all-time highs. In the 1^st quarter this year, the S&P 500 had the worst quarterly earnings reporting season since the cycle began in 2009, with a -6% earnings growth and -2% revenue growth. If you take out energy, you get a little bit better than that, but the numbers are still pretty weak. Consensus for the 2^nd quarter is much the same, but apparently we are going to make it up in the back half of the year to get a slightly positive number. There is going to have to be a resumption in growth for the market to take another leg higher in the US.

Markets. Currently he is about 80% invested for clients with about 10%-20% in cash, so if it can outperform the market while this rally is going on, that is great. He does have the cash in the event there is a market correction. This market has been pushed by ultra low interest rates for such a long time that people are either using margin, speculating, or borrowing like crazy. Companies are doctoring their bottom lines by buying back shares and making earnings go a little bit higher, but not really seeing a lot of growth. His focus is that companies must have free cash flow every year with which they could allocate a third to raising dividends, a third to capital expenditures, and a third to capital acquisitions if needed.

Gold. Has had a look at all the gold stocks and doesn’t like the companies. They are very leveraged and the price of gold has to go up to make the leverage pay off. Also, they are high cost mines. If you must own gold, he would suggest a bullion ETF, or just buy gold wafers that you can stick in your safety deposit box.

Pensions considered fixed income? Not if the pension has equities in it. Equities are NOT fixed income. [Pounding the table]

A Trump presidency won’t cause a bear market, but before the election it could cause some uncertainty and markets don’t like that. If he got them into a lot of trade troubles it could be bad.

RESP Investment Recommendation for 6-year old. You have at least 10 years before you use the money. The markets can do a lot of ups and downs. Don’t just buy 4 stocks because you are not diversified enough and the RESP would be about $20k only. He recommends ETFs. Start with a whole world ETF with currency hedging. You definitely want S&P exposure and you need no fixed income. Don’t concentrate in Canada.

Lending out your stocks. There is no risk to you to have your brokerage firm loaning out your holdings. This is how the firms can move towards free trades.

Covered Call ETFs. Covered calls on about 50% of the portfolio. The managers can write calls on 50-60% of the holdings and do this 1-2 months out. The manager has some discretion, but it is a relatively narrow window. With ZWB-T vs. ZEB-T, once we are down 10%, you want to move from ZWB-T to ZEB-T.

Educational Segment. Growth. The ECRI have some great free stuff on their web site. Dips in the GDI below 0 mean we are in a recession. Less than 2% is a period of stagnation and is where it has been for the last couple of years. We can expect this to continue and it depends somewhat on who wins the election and what they do with minimum wage laws. Another great indicator is a 20 country coincident growth diffusion indicator. Below .50 is contractionary and that is where it has been over the last couple of years.

Markets. He does not sell in May and go away. He sells when his opinion of value changes or he finds something better to buy. He is fully invested. In the short run rising interest rates could be lousy for stocks, bonds and preferred shares, but we have been expecting this, so some of it is baked in. It does not change his opinion. He does not see interest rates in Canada going up any time soon. Own companies that will do well in a rising rate environment as well as owning ones that will do well with a lowering rate environment. Don’t sit in cash or bonds. He is comfortable with his US holdings.

[There was a fire in the studio which cut the show short about 2/3rds of the way through.]